HALF-YEAR REPORT 2015: SWATCH GROUP – GROWTH DESPITE

1 Press release 16 July 2015

PRESS RELEASE

BIEL/BIENNE, 16 JULY 2015

HALF-YEAR REPORT 2015:SWATCH GROUP – GROWTH DESPITE MASSIVELY OVERVALUED SWISS FRANC

• The Group’s net sales were up 3.6% to CHF 4 248 million at constant exchange rates or 2.2% to CHF 4 192 million at current rates. Calculated in euros, the Group grew by 18.7%.

• In the Watches & Jewelry segment, including Production, the Swatch Group grew by 3.4% at constant exchange rates in comparison with the declining export of wrist watches of the Swiss Watch Industry of -1.1% at the end of May.

• Accelerated growth in May and June 2015.

• Operating profit of CHF 761 million, 8.3% under the first half of the previous year, due to significant currency shifts in the recent past. Nevertheless, operating margin reached 18.2% for the Group.

• In the Watches & Jewelry segment, including Production, the operating margin reached 20.0%.

• Swiss franc shock and negative interest rates result in a lower net income of CHF 548 million, 19.4% below the first half of 2014.

• Positive outlook for the second half of the year, with the launch of new products such as Omega’s new James Bond Edition, the introduction of the Omega Master Co-Axial with METAS certification, the Swatch Touch Zero One and the Swatch NFC (Near Field Communication) as a contact-free means of payment; as well as with the additional increase in capacity at Tissot for its very successful T-Touch Expert Solar.


GROUP OVERVIEW

Group Key Figures

(CHF million)1st half

20151st half

2014 Change in %at constant

ratescurrency

effectTotal

Net sales 4 192 4 102 + 3.6% – 1.4% + 2.2%

Operating profit 761 830 – 8.3%– in % of net sales 18.2% 20.2%

Net income 548 680 – 19.4%– in % of net sales 13.1% 16.6%

Investments in non-current assets 355 396Equity, 30 June 10 617 9 832Market capitalization, 30 June 19 937 28 733

Annualized return on equity (ROE) 10.3% 14.0%

Basic earnings per share – expressed in CHF per share:– Registered shares 1.94 2.43– Bearer shares 9.70 12.14

Unaudited figures.

StrategyThe long-term Group strategy remains unchanged:1. Manufacturing base Switzerland for all segments; 2. Priority on gaining market share; 3. Further expansion of its own retail network. Group overviewIn the first half of 2015, the Swatch Group generated net sales of CHF 4 248 million at constant exchange rates, and thereby grew by 3.6%. With the further worsening of the exchange rate situation against the massively overvalued Swiss franc, Group sales were reduced by an additional CHF 56 million or 1.4 percentage points. The financial and currency shock of 15 January 2015 caused by the Swiss National Bank (SNB) created an imbalance in sales prices compared to Switzerland, particularly in euro countries. Calculated in euros, Group net sales grew by 18.7%. Despite this extraordinary situation, the Group will maintain its long-term strategy of defensive price adjustment policy over short-term profit.


Highlights of the first half 2015 Growth abroadIn the Watches & Jewelry segment, including Production, the Swatch Group achieved net sales growth of 3.4% at constant rates and 2.0% at current rates compared to the previous year. In comparison, exports of wrist watches for the entire Swiss watch industry fell 1.1% up to and including end of May.In euro countries, the Swatch Group achieved double-digit growth rates in local currency. In most other countries as well, sales increases in local currency were achieved. The exceptions are South Korea, due to the slowdown in tourism caused by the MERS (Middle East Respiratory Syndrome), and Hong Kong, due to the acknowledged general downturn in tourists. On the other hand, the mainland China market continues to grow, particularly for the brands in the high and middle range – and at the top of the growth list is the Swatch brand in the basic range.

The new regional mix caused by shifting exchange rates and the changed travel patterns of Asians is the decisive factor of bringing the operating margin in this segment at 20.0% of net sales. Production, integrated in the Watches & Jewelry segment, reported very good capacity utilization, driven mainly by the Group’s own brands.

The Group’s retail business reported very good growth, thus validating its successful strategy of winning market share. Not only in Europe, high double-digit growth was achieved in own stores. Also the successful retail business in Japan and other Asian countries, as well as in the Middle East, achieved more than 10% growth. Retail business grew in the USA as well, particularly the Swatch brand, which quintupled sales of its mechanical watches in the American market.

The Electronic Systems segment generated growth of 7.6% in the first half of this year at current exchange rates and closed the period with net sales of CHF 156 million, despite the continued strength of the franc against the USD and JPY. The increase in sales was driven by the delivery of energy-efficient integrated circuits for electronic consumer goods such as fitness bands, mobile phones, smart watches and other smart objects. In addition, Renata, market leader in environmentally friendly batteries with the highest energy density, recorded very satisfactory growth rates and contributed significantly to this result. Operating profit in the Electronic Systems segment reached CHF 6 million. PersonnelAgain in the first half of 2015 over 400 new jobs were created, of which 100 in Switzerland. The latter were mainly created in brand companies. Abroad, chiefly retail personnel for new stores were hired. As a result, the number of employees increased to over 36 000 at the end of June 2015. TrainingThe Swatch Group promotes vocational training at all levels, particularly for young people who wish to graduate as professional watchmaker or in related technical professions. In Switzerland, roughly 180 apprenticeships were again awarded, so that the number of trainees in Switzerland rose to approximately 450. Abroad, there are currently 140 trainees, of which 80 apprentices will receive their training at Glashütte Original in Germany. In addition, approxi-mately 50 adults will be trained and supervised until graduation as professional watchmaker. Further, the Swatch Group has 150 students in training in its own six watchmaking schools – Secaucus (USA), Kuala Lumpur (Malaysia), Shanghai and Hong Kong (China), Pforzheim (Germany) and Manchester (UK).

Operating profit and net incomeDue to this year’s shifts in exchange rates and the new country mix, an operating profit totaling CHF 761 million was generated, corresponding to an operating margin of 18.2%. Despite additional pressure resulting from the overvalued Swiss franc against most other currencies, as well as the low or even negative interest rate situation in some curren-cies and the marked-to-market valuation of the important Euro portfolio held as at mid of January, net income reached nevertheless CHF 548 million or 13.1% of net sales.

Product HighlightsThe antimagnetic Omega Co-Axial Globemaster Collection (METAS certified), the Speedmaster 57 Vintage Dial and the Swatch brand mechanical watches, particularly the best seller Swatch Sistem51, made a significant contribution to the good sales results. The explosive demand for the Tissot T-Touch Expert Solar resulted in significant supply bottlenecks for the brand. The necessary adjustments in production have been made in order to shorten significantly waiting times in the second half of the year.

InvestmentsAcross all segments, the Group invested a total of CHF 355 million in non-current assets in the first half of 2015. The Group’s retail network was increased with the opening of numerous new boutiques in the best locations, and Produc-tion was expanded with the latest equipment. Significant investment was made in the area of customer service, both in Switzerland and in the foreign subsidiaries.

Cash FlowOperating cash flow amounted to CHF 821 million in the period under review, after tax payments of CHF 191 million. The decline compared to the previous year can be attributed mainly to payments from a legal case received at the beginning of 2014. InventoriesInventories increased only slightly in value since the beginning of the year and amount to CHF 6 billion at the end of June. The increase is exclusively attributable to the opening of new retail stores and to the further investment in dia-monds. The major portion of inventories consists of finished and semi-finished products for current and newly launched collections such as the Omega Co-Axial Globemaster Chronograph collection, the Swatch Touch Zero One and Swatch NFC. Also, Harry Winston opened additional large retail stores – in Dubai, Miami and Macao – in the first half of the year, as well as expanding existing retail stores such as those in Hong Kong and at Harrod’s in London. Finished prod-ucts in inventories are clearly a prime sales generator.

Outlook

The outlook for the Group in all regions and segments remains very good. Despite the Swiss franc dilemma, Group Management expects a strong second half 2015.

Tourism in South Korea will stabilize again after MERS and sales in Greater China and other regions will further in-crease in local currency. For all brands, this growth will be supported by a high level of marketing investment, an expanded retail network and also by the many new product launches in all segments.

The high consumer demand worldwide for Swiss watches continues very dynamically across all segments, particu-larly also in the area of mechanical watches. Under these circumstances, and also remaining focussed on the successful long-term strategy to increase market share, further very positive growth in local currency is expected.


Interim Consolidated Financial Statements

INCOME STATEMENT

1st half 2015

1st half 2014

CHF million % CHF million %

Net sales 4 192 100.0 4 102 100.0

Other operating income 44 1.0 214 5.2Changes in inventories 233 5.6 312 7.6Material purchases – 1 063 – 25.4 – 1 159 – 28.3Personnel expense – 1 217 – 29.0 – 1 175 – 28.6Depreciation on tangible assets – 174 – 4.1 – 155 – 3.8Amortization on intangible assets – 18 – 0.4 – 17 – 0.4Other operating expenses – 1 236 – 29.5 – 1 292 – 31.5

Operating profit 761 18.2 830 20.2

Other financial income and expense – 54 – 1.3 13 0.3Interest expense – 1 – 0.0 – 1 0.0Share of result from associates and joint ventures 2 0.0 3 0.1

Ordinary result 708 16.9 845 20.6

Non-operating result 1 0.0 0 0.0Extraordinary result – 0.0 – 0.0

Profit before taxes 709 16.9 845 20.6

Income taxes – 161 – 3.8 – 165 – 4.0

Net income 548 13.1 680 16.6

Attributable to equity holders of The Swatch Group Ltd 526 659Attributable to non-controlling interests 22 21

Earnings per share (EPS) – expressed in CHF per share:

Registered sharesBasic earnings per share 1.94 2.43Diluted earnings per share 1.94 2.43

Bearer sharesBasic earnings per share 9.70 12.14Diluted earnings per share 9.69 12.13

Unaudited figures.




BALANCE SHEET

30.06.2015 31.12.2014Assets CHF million % CHF million %

Current assets

Cash and cash equivalents 1 104 8.6 1 202 9.4Marketable securities and derivative financial instruments 339 2.7 263 2.1Trade receivables 1 037 8.1 1 108 8.7Other current assets 124 1.0 135 1.1Inventories 6 044 47.3 5 943 46.6Prepayments and accrued income 309 2.4 295 2.3

Total current assets 8 957 70.1 8 946 70.2

Non-current assets

Property, plant and equipment 3 028 23.7 3 010 23.6Intangible assets 144 1.1 150 1.2Investments in associates and joint ventures 67 0.5 70 0.5Other non-current assets 197 1.6 201 1.6Deferred tax assets 377 3.0 370 2.9

Total non-current assets 3 813 29.9 3 801 29.8

Total assets 12 770 100.0 12 747 100.0

Unaudited figures.



BALANCE SHEET

30.06.2015 31.12.2014Equity and liabilities CHF million % CHF million %

Current liabilities

Financial debts and derivative financial instruments 16 0.1 35 0.3Trade payables 338 2.6 371 2.9Other liabilities 301 2.4 158 1.2Provisions 81 0.6 83 0.7Accrued expenses 620 4.9 661 5.2

Total current liabilities 1 356 10.6 1 308 10.3

Non-current liabilities

Financial debts 34 0.3 38 0.3Deferred tax liabilities 623 4.9 604 4.7Retirement benefit obligations 34 0.3 38 0.3Provisions 50 0.4 47 0.4Accrued expenses 56 0.4 38 0.3

Total non-current liabilities 797 6.3 765 6.0

Total liabilities 2 153 16.9 2 073 16.3

Equity

Share capital 125 125Capital reserves – 1 017 – 1 037Treasury shares – 315 – 301Goodwill recognized – 1 372 – 1 372Translation differences – 188 – 6Retained earnings 13 293 13 174

Equity of The Swatch Group Ltd shareholders 10 526 82.4 10 583 83.0

Non-controlling interests 91 0.7 91 0.7

Total equity 10 617 83.1 10 674 83.7

Total equity and liabilities 12 770 100.0 12 747 100.0

Unaudited figures.


STATEMENT OF CASH FLOWS

1st half 2015

1st half 2014

CHF million CHF million

Operating activitiesNet income 548 680Reversal of non-cash items 353 322Changes in working capital and other items included in operating cash flow 106 194Dividends received from associated companies 2 2Interest received 4 26Interest paid – 1 – 1Income tax paid – 191 – 210

Cash flow from operating activities 821 1 013

Investing activitiesInvestments in property, plant and equipment – 289 – 329Proceeds from sale of property, plant and equipment 1 3Investments in intangible assets – 20 – 20Proceeds from sale of intangible assets 0 0Investments in other non-current assets – 46 – 47Proceeds from sale of other non-current assets 2 1Acquisition of subsidiaries – net of cash – – 4Divestment of subsidiaries – 3Investments in associated companies and joint ventures – –Divestments of associated companies and joint ventures – –Purchase of marketable securities – 164 – 126Sale of marketable securities 77 173

Cash flow from investing activities – 439 – 346

Financing activitiesDividends paid to shareholders – 407 – 407Dividends paid to non-controlling interests – 17 – 6Purchase of treasury shares – 14 –Sale of treasury shares 1 –Change in non-current financial debts – 2 – 2Change in current financial debts 2 0Sale of non-controlling interests 11 –

Cash flow from financing activities – 426 – 415

Net impact of foreign exchange rate differences on cash – 54 – 3

Change in cash and cash equivalents – 98 249

Change in cash and cash equivalents– At beginning of year 1 202 908– At 30 June 1 104 – 98 1 157 249

Unaudited figures.




STATEMENT OF CHANGES IN EQUITY

Attributable to The Swatch Group Ltd shareholders Non- controlling

interests

Total equity

(CHF million)Share

capitalCapital

reservesTreasury

sharesGoodwill

recognizedTranslation differences

Retained earnings

Total

Balance at 31.12.2013 125 – 1 062 – 268 – 1 369 – 115 12 197 9 508 66 9 574

Net income 1st half 2014 659 659 21 680Currency translation of foreign entities – 12 – 12 0 – 12Compensation of goodwill Group companies – 3 – 3 – 3Dividends paid – 407 – 407 – 6 – 413Share-based compensation:– Value of employee services (net of tax) 6 6 6– Proceeds from sale of shares – –Sale of treasury shares – –Purchase of treasury shares – –

Balance at 30.06.2014 125 – 1 056 – 268 – 1 372 – 127 12 449 9 751 81 9 832

Net income 2nd half 2014 725 725 11 736Currency translation of foreign entities 121 121 7 128Compensation of goodwill Group companies – –Dividends paid – – 8 – 8Share-based compensation:– Value of employee services (net of tax) 15 15 15– Proceeds from sale of shares 1 1 1Sale of treasury shares 3 74 77 77Purchase of treasury shares – 107 – 107 – 107

Balance at 31.12.2014 125 – 1 037 – 301 – 1 372 – 6 13 174 10 583 91 10 674

Net income 1st half 2015 526 526 22 548Currency translation of foreign entities – 182 – 182 – 5 – 187Compensation of goodwill Group companies – –Dividends paid – 407 – 407 – 17 – 424Share-based compensation:– Value of employee services (net of tax) 7 7 7– Proceeds from sale of shares 1 1 1Sale of treasury shares – –Purchase of treasury shares – 14 – 14 – 14Changes in non-controlling interests 12 12 12

Balance at 30.06.2015 125 – 1 017 – 315 – 1 372 – 188 13 293 10 526 91 10 617

Unaudited figures.

Notes to the Interim Consolidated Financial Statements

1. Basis of preparation and significant accounting policies

These consolidated financial statements cover the unaudited interim results for the six months ending 30 June 2015. They have been prepared in accordance with Swiss GAAP FER (Accounting and Reporting Recommendations). The consolidated interim financial statements for 2015 have been prepared in accordance with FER 31 “Supplementary Recommendation for Listed Companies”.As of 1 January 2015, the Group adopt early implementation of the new revenue recognition rule (changes in Swiss GAAP FER Framework, FER 3 and FER 6), which is applicable to consolidated financial statements as of 1 January 2016. The new rule specifies how revenue is to be recognized, valued and disclosed. The long-standing accounting and re-porting principles of the Swatch Group already comply with the new revenue recognition rule according to Swiss GAAP FER. As a result, the changes have no impact on revenue recognition for the Group and it was not necessary to restate the previous year figures.

These interim financial statements do not contain all the information and disclosures required in the annual consoli-dated financial statements. They should therefore be read in conjunction with the consolidated financial statements as at 31 December 2014. In this interim report, Management has not made any significant changes to the estimates and assumptions compared to the previous period.

2. Changes to Group structure

At 30 June 2015 the Group consolidation structure comprised 168 legal entities (31 December 2014: 172). The decrease was due to mergers within the Group. Information on business combinations can be found in Note 5.

3. Key exchange rates

Average rates Prevailing rates Average rates Prevailing rates Prevailing rates01.01.-30.06.2015 30.06.2015 01.01.-30.06.2014 31.12.2014 30.06.2014

CHF CHF CHF CHF CHF1 CNY 0.1524 0.1513 0.1445 0.1598 0.14371 EUR 1.0506 1.0450 1.2203 1.2030 1.21601 HKD 0.1223 0.1210 0.1152 0.1277 0.1150100 JPY 0.7881 0.7670 0.8758 0.8300 0.88001 USD 0.9478 0.9380 0.8933 0.9905 0.8915



4. Segment information

1st half 2015 (CHF million)

Watches & Jewelry

Electronic Systems

Corporate Elimination Total

– Third parties 4 044 145 3 4 192– Group 1 11 3 – 15 0Net sales 4 045 156 6 – 15 4 192Operating profit 807 6 – 52 761– As a % of net sales 20.0% 3.8% 18.2%– As a % of total 106.0% 0.8% – 6.8% 100.0%

1st half 2014 (CHF million)

Watches & Jewelry

Electronic Systems

Corporate Elimination Total

– Third parties 3 965 133 4 4 102– Group 1 12 2 – 15 0Net sales 3 966 145 6 – 15 4 102Operating profit 889 – 10 – 49 830– As a % of net sales 22.4% – 6.9% 20.2%– As a % of total 107.1% – 1.2% – 5.9% 100.0%

Total assets at 30.06.2015 11 452 385 4 710 – 3 777 12 770Total assets at 31.12.2014 11 446 397 4 289 – 3 385 12 747

Unaudited figures.

5. Business combinations

There were no business combinations in the first half-year 2015.

In the first half of 2015, minority shares of two companies in the Middle East were sold. These transactions resulted in a cash inflow of CHF 11 million, but had no impact on the consolidation structure. The Swatch Group continues to maintain control over both companies.

In the first half of 2014, Swatch Group acquired all the shares of René Clémence S.A. in La Chaux-de-Fonds (Switzer-land). The company is a watch glass manufacturer. The Group also acquired 100% of the shares of the Canadian company H.W. Protection Inc, Toronto, in the first half of 2014. This company provides services solely to other Group companies.The net cash outflow from both acquisitions totalled CHF 4 million. The accumulated goodwill from both acquisitions which was recognized in equity amounted to CHF 3 million.

In the first half of 2014, Swatch Group sold its entire participation in Oscilloquartz AG, Neuenburg (Switzerland) to ADVA Optical Networking SE, Munich (Germany). The net assets sold amounted to CHF 12 million. The net cash inflow from the sale amounted to CHF 3 million.

6. Investments in associated companies and joint ventures

In the first half-year 2015 as well as 2014, there were no changes in investments in associated companies and joint ventures.


7. Goodwill

Goodwill is recognized directly in equity at the time of purchase of a subsidiary or an investment in an associated company. The theoretical capitalization of goodwill, applying a depreciation period of 5 to 10 years, would have the following impact on equity and net income:

Theoretical impact on equity

(CHF million) 30.06.2015 31.12.2014 30.06.2014

Equity, per balance sheet 10 617 10 674 9 832Theoretical capitalization of net book value of goodwill 816 877 938

Theoretical equity including net book value of goodwill 11 433 11 551 10 770

Theoretical impact on net income

(CHF million) 30.06.2015 31.12.2014 30.06.2014

Net income, per income statement 548 1 416 680Theoretical amortization of goodwill – 61 – 122 – 61

Theoretical net income after amortization of goodwill 487 1 294 619

8. Treasury shares

In the period under review, the Swatch Group purchased treasury shares in the amount of CHF 14 million and sold treasury shares in the amount of CHF 1 million (related to the employee stock option plan).

In the previous period, the Swatch Group neither purchased nor sold treasury shares.

9. Dividend

The Company pays one dividend per fiscal year. For fiscal year 2014, the dividend agreed at the Annual General Meet-ing on 28 May 2015, with a value date of 3 June 2015, was distributed as follows:

Dividend per registered share CHF 1.50Dividend per bearer share CHF 7.50

Total dividend paid CHF million 407

Based on the decision of the Annual General Meeting, the dividend due on treasury shares held by the Group was not paid out.

10. Seasonality of operations

Due to the somewhat seasonal pattern of the Watches & Jewelry segment, slightly higher revenues and operating profits are usually expected in the second half of the year in local currency. This is mainly due to stronger-than-average monthly sales from September to December related to the holiday and Christmas season.

11. Significant events and business transactions

During the period under review, no material events or business transactions occurred that might have an impact on the critical estimates, appraisals and assumptions to be found in the consolidated financial statements as at 31 December 2014. Also, there were no further material events or business transactions that might impact upon other positions in the consolidated financial statements (such as, for example, changes to contingent liabilities and receivables or busi-ness transactions involving associated enterprises and persons).

12. Events after the closing date

At the publish date of this press release, the company is not aware of any significant new event that would affect the half-year figures at 30 June 2015.

Original: GermanTranslations: English, French and Italian


CONTACTS

InvestorsFelix Knecht, Investor Relations OfficerPhone: +41 32 343 68 11

The Swatch Group Ltd, Biel/Bienne e-mail: http://www.swatchgroup.com/contactus

MediaBéatrice Howald, Spokesperson Phone: +41 32 343 68 33

Bastien Buss, Corporate CommunicationsPhone: +41 32 343 66 80

The Swatch Group Ltd, Biel/Bienne e-mail: http://www.swatchgroup.com/contactus

Documents

HALF-YEAR REPORT 2015: SWATCH GROUP – GROWTH DESPITE